Finance Committee on April 30th, 2019

[Yves Giroux]

A debt anchor can be defined in a few ways. It could be the absolute level of debt or it could be the debt in proportion to the size of the economy. The government has chosen to opt for the second version: federal debt as a proportion of the economy. The government's stated goal is for the debt to stand at 31.9% of GDP.

One can reach that by adjusting the level of debt or accumulated deficits. It can also stimulate the economy or slow it down—a very unlikely event—because it's a denominator and a numerator: the debt divided by GDP. Of course, if the GDP grows faster, you don't need to do that much with the debt to make it represent a smaller share of the economy. That's the type of anchor the government has chosen.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you very much.

When we talk about debt-to-GDP ratios, I think often people's eyes glaze over and they're not necessarily—

[Yves Giroux]

I don't understand that type of reaction, being an economist, but yes, apparently it happens.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

There you go.

You also mentioned something about the three pillars of our pension system and the fact that it has positioned us in a very good place as a country, compared with others.

You talked about the Canada pension plan, the OAS and the private plans. As we know, there has been a shift in the past number of years away from defined benefit plans and even defined contribution plans to more self-contributing RRSPs, TFSAs and all of that.

One thing our government did was increase contributions to the Canada pension plan, with a long-term view of increasing the income that future recipients would have. Did you include that in your projection of the numbers you were talking about concerning the strength of this program?

[Yves Giroux]

Yes. These types of government policies that have been announced and implemented are included in our forecast.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Okay, thank you.

In your “Labour Market Prospects” section, you talk about the decline. Largely we're talking about employment rate. You say, “This decline largely reflects demographic factors as an increasing number of baby-boomers”—I am one of those—“leave the labour force. However, employment levels will continue to increase over this period given solid population growth averaging 1.2 per cent annually.”

Is immigration factored into that number?

[Yves Giroux]

Yes, we have factored in immigration levels, and our demographic assumptions are based on those from StatsCan. I don't have the numbers off the top of my head, of course—

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

No?

[Yves Giroux]

—but yes, they are included.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Okay. Thank you very much.

[The Chair, Liberal, Wayne Easter]

We'll turn to Mr. Poilievre, and then to Mr. Fergus.

[Pierre Poilievre, Conservative, Carleton, ON]

Do you have a different definition of “infrastructure” from the government's definition?

[The Chair, Liberal, Wayne Easter]

Who wants to respond?

Mr. Giroux, go ahead.

[Yves Giroux]

When we do our reports on infrastructure programs, we have used the government's definition of infrastructure because of the nature of the program, the number of infrastructure projects. We have not decided what should be counted as infrastructure and what should not be classified as infrastructure, because the objective of our report was to determine whether there was incrementality in provincial spending or not.

That being said, there are various definitions of infrastructure, and I have to say that when I glanced at some of the projects, some didn't strike me as infrastructure in the sense I had expected. For example, I saw communications equipment for public transit systems, bus shelters.... These are a couple of examples I remember that struck me as, at the very least, light infrastructure projects.

To answer your question, we have used the government's definition of infrastructure.

[Pierre Poilievre, Conservative, Carleton, ON]

You comment on the lack of incrementality in the infrastructure programs. Can you give us examples of the type of so-called infrastructure spending that has displaced other provincial and local spending that would otherwise have occurred?

[Yves Giroux]

We don't have specific examples because we looked at macro levels. What that means is that we looked at provincial and territorial investment plans when they were available, as well as at municipal plans, pre-announcement and post-announcement.

In the presence of incrementality, the pre-federal announcement plans should have been augmented or bonified to take advantage of the federal plan. This means that before the government announced its plan, there were projected levels of investment by provinces and territories, so when the government announced an increase in its infrastructure programs, we expected to see a corresponding increase to provincial plans, which did not materialize to the same extent.

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

[Yves Giroux]

There was some level of displacement, but we didn't do the microanalysis, looking project by project, because I would have needed much more analysis and many more analysts than the number we have.

[Pierre Poilievre, Conservative, Carleton, ON]

As federal spending on so-called infrastructure has increased dramatically over the last 25 to 30 years in Canada, we've also seen a very dramatic increase in the personnel budgets of the municipalities.

One would ask what one has to do with the other. It's clear to me that what's happening is that federal spending is displacing spending that would otherwise have happened, and then municipalities are taking the freed-up money and using it to expand their personnel. Does that sound like a realistic hypothesis to you?

[Yves Giroux]

That sounds like something very plausible that has probably happened at least in part. To say that it has entirely displaced provincial or municipal spending—or the opposite—is probably too strong, but it has happened at least in part, based on what we found in our reports.

[Pierre Poilievre, Conservative, Carleton, ON]

How does your estimated growth impact of the government's new infrastructure spending compare to the government's promised impact?

[Yves Giroux]

I don't remember off of the top of my head. Maybe Jason has a better memory than I do because he's younger, but maybe not.

[Voices]

Oh, oh!

[Jason Jacques]

In terms of what the government actually originally tabled as part of budget 2016 versus our most recent report around the economic impacts, it's roughly about half, but that half is primarily attributable to the fact that there were delays in actually getting the program out the door, initial delays in negotiating the agreement with the provinces and the municipalities and then further delays in cutting the cheques to get the projects approved.

All that said, at some point in the future with those delays, the government still has indicated that the money is on the table, so potentially there's going to be some pickup or recapture at some point.

[Pierre Poilievre, Conservative, Carleton, ON]

When the government spends borrowed money, that money has to be borrowed out of the economy. Do you take that into consideration when you determine the impacts on economic growth of infrastructure and other governmental spending?